A FINAL PROJECT PROPOSAL

ON
CREDIT AND LOAN MANAGEMENT
(WITH Reference to commercial bank)

Submitted by:
Pragati Dabadi
Capitol Hill College
Reg. No: 7-2-0170-0032-2

Submitted to:
Research committee
Capitol Hill College

Teku,Kathmandu
September,2018
 Contents

1. Background of the study ………………………………………….1

2. Profile of the concerned bank…………………………………….3
3. Statement of the problem………………………………………….4
4. Objectives of the study……………………………………………….4
5. Rationale of the study…………………………………………………4
6. Report structure………………………………………………………….5
7. Review of literature…………………………………………………….5
8. Methods……………………………………………………………………..7
9. Limitations of the study……………………………………………….8

Reference
1.Background of the study

The word bank was borrowed in middle English from middle French banque, from old Italian
banca, meaning “table”, from Old High German banc, bank “bench, counter”. Benches were used
as makeshift desk or exchange counter during the Renaissance by Jewish Florentine bankers,
who used to make their transition atop desks covered by green tablecloth.
A bank is a financial institution licensed to receive deposit and make launch. It is financial
institution which deals with money and credit. Bank may also provide financial service, such as
wealth management, currency exchange and safe deposit boxes. There are two types of bank;
commercial/retail banks and investment banks. In most countries, bank are regulated by the
national government or central bank. Bank is the mechanism of providing loan to demanders
from investors. Bank plays very important role in economic system.
Bank acts as payment agents by conducting checking or current account for customers, paying
checks drawn by customer on the bank and collecting cheques deposited to customers current
account. Bank also enables customer payments via other payment method such as Automated
Clearing House (ACH), Wire transfer or telegraphy transfer and Automated Teller Machine
(ATM).
Bank provides different payment services and bank account is considered indispensable by
most businesses and individual. Bank can create new money when they make a loan. The
money supply is usually increased by the act of lending and reduced when loans are repaid
faster than new ones are generated.
A loan is when you receive money from a friend, bank or financial institution. Loans are of
various types: Personal loan, cash advance, student loan, mortgage loan, Home-equity loan,
small business loan.
Credit is a contractual agreement in which a borrower receives something of value now and
agrees to repay the lender at some time in future, generally within interest. There are various
types of credit: Bank credit, breaking down “bank credit”, approval, fees, business credit.

The initiation of formal banking system in Nepal commenced with the establishment in 1937 of
Nepal bank limited(NBL),the first Nepalese commercial bank. The country’s central bank,
Nepal Rastra Bank (NRB) was established in 1956 by Act of 1955, After nearly two decades of
NBL having been in existence. A decade after the establishment of NRB,Rastriya Banijya Bank, a
commercial bank under the ownership of his Majesty’s Government of Nepal(HMG/N) was
established.
Basic sources funds for commercial banks are capital(funds from shareholders), serves(retained
profit) and various types of deposits. Basic funds are loan advances and investment.
Obviously now in Nepal, banks and financial institution have started to grow considerably and
getting concentration on both off- balance sheet and on- balance sheet activities. Presently in
our country, there are some commercial banks, three development banks, seventy-eight co-
operatives a large number of NGOs and some non-banks financial institutions operating with
their largely provided framework and directed field of performing portfolios. Regarding the
development bank in Nepal, the first bank to be established was a commercial bank. Nepal
bank limited established in1994 B.S. was the first bank in the history of Nepal to perform.
The function of central bank Rastriya Banijya Bank, another commercial bank was established in
2022 B.S only after 2041 B.S. his majesty government (HMG) allows joint venture and public
LTD.

Major function are as follows:

 It accepts deposit and pay interest according to the kind of deposit.
 After collecting money by away of deposit, a bank invest it or lends it out to the
needy usually for short period only.
 It provides cheque pads to the accountholders, Accountholders can draw cheque upon
to pay bank.
 It provides the facilities of remittance to the customer and earn some service charges.

According to Nepal company act 2031 B.S, a commercial bank refers to such type of
bank which deals in money exchange accepting deposit advance loan and commercial
transaction except specific banking related to co-operative agriculture industry and
other objective.
The scope of credit and loan management sector is wide. A researcher can select
many more topic to conduct research work. As myself is a managerial student with
specialization in finance of Tribhuvan University I am very curious to know about issue
on credit and loan management of this commercial banks.
2. Profile of the concerned bank
Rastriya Banijya Bank was established on January 23, 1966 (2022, Magh 10) is a synonymous of
stable and people’s bank in Nepal – is one of the pioneer bank in the country with the history of
nearly a half century. Earlier constituted under RBB act 2021 with the full ownership of the
government of Nepal, the bank has been running under bank and financial institute Act (BAFIA)
and company act (CA) 2063 at present. The bank licensed by NRB as a ‘A’ class commercial Bank
of the country has grown as an indispensable component of the Nepalese economy.
The bank with 2600 hands has expanded its wings in the most parts of the country through
multiple distribution outlets of 170 branches, 17 counters, 28 branch less banking (BLB) and 72
ATMs. The bank with as many as 1.7 million satisfied /direct customers ranging from poor to
elite once and millions of indirect ones, has drawn important imprints in the picture of
country’s economy through its significant involvement in the best use of its resources to
enhance the production, income and employment opportunities.
Regional offices of Rastriya Banijya Bank:
 Kathmandu Regional Office
 Biratnagar Regional Office
 Birgunj Regional Office
 Pokhara Regional Office
 Nepalgunj Regional Office
Vision:” To provide innovative banking services to everyone, everytime and
everywhere.”
Mission:” To provide easy and innovative banking products and services for our cutomer
by implementing one stop service concept from our wide network using our modern
technology qualified human resources in competitive environment. We always look for
the benefit of the local communities supporting entrepreneurship, social responsibility
and economic prosperity of the nation.”
Some of the major product and services provided by Rastriya Banijya Bank:
 Letters of credit (local, import and export)
 Various types of Bonds/Guarantee (including counter guarantee)
 Collections (clean and documentary)
 Short-term Trade finance (import, export , and bills)

Objectives of Rastriya Banijya Bank:

 Focus on providing innovative financial services
 Sustainable increase on profit
 Enhance operational efficiency
3. Statement of the problem
Some of the problems are listed as follows:
 The main problem is banking habit of people. Only 30% of the people have access to
banks.
 Commercial banks are mostly concentrated in urban areas.
 Bank credit is security oriented rather than project oriented.
 Less investment in productive nepotism, government instability & cutthroat
competition.

4. Objective of study
This study intends to analyze some relevant factors affecting the financial performances of
RBBL.
 To examine the financial performance of RBBL in terms of their liquidity position.
 To examine the financial performance of RBBL in terms of their leverage position.
 To examine the financial performance of RBBL in terms of profitability.

5. Rationale of the study

The study bears usefulness which are mentioned as follows:
 This study will be helpful to go deeply into various as too why the performance of other
joint venture banks.
 The study will help the shareholders to know their funds are utilizing and to what extent
they are gaining.
 The study will be useful to know the performance of RBBL.

6. Report structure
The project study will be divided into the following chapters. They are as follows:
 chapter one: This deals with introduction of the study which includes the background,
profile of the organization, objectives of the study, rationale of the study, review,
methods and limitations of the study.
 chapter Two: This deals with results and analysis which includes data presentation,
analysis of results and findings chapter Three: This deals with the summary and
conclusion.

7. Review of literature

a) Conceptual Review
Lending is the principle business activity for most commercial bank . The loan is typically
the largest assets and the predominant source of revenue. Whether due to lax credit
standards poor portfolio risk management or weakness in the economy, loan problems
have been the major causes of bank losses and failures. A credit score provides an easy
way for lenders to numerically judge your credit at a point in time.

b) Review of Related project work

According to Merriam webster, ‘credit is the provision of money, goods and services
with the expectation of future payment. credit means assets to the trust of something
offered for acceptance. A credit is a legal contract where one party receives resource or
wealth from another party and promises to repay him on a future date along with
interest.

Frequently, credit refers to the terms and conditions associated with a deferred
payment arrangement, for example, easy credit and cheap prices. Credit also denotes
the borrowing capability of an organization or person.

According to Leonke,” a loan is the act of giving money, property or other material
goods to another party in exchange for future repayment of the principal amount along
with interest’
According to business dictionary, written or oral agreement for a temporary transfer of
a property (usually cash) from its owner (the lender) to a borrower who promises to
return it according to the terms of the agreement, usually with interest for its use. If the
loan is repayable on the demand of the lender, it is called a demand loan. If repayable in
equal monthly payment, it is an installment loan. If repayable in lump sum on the loan’s
maturity(expiration) date, it is a time loan.

Loans can come from individuals, corporation, financial institutions, and governments.
They offer a way to grow the overall money supply in an economy as well as open up
competition and expand business operations. The interest and fees from loan are a
primary source of revenue for many financial institutions such as bank, as well as some
retailers through the use of credit facilities.
 Parker (2002) presents an overview of the modern theory and evidence of credit
rationing, and concludes that the case for credit rationing is weak. He suggests that
theoretical arguments for or against credit rationing are inconclusive, so evidence is
needed to decide the issue.

c) Research Gap
several studies can be found in literature. Hence, this study will made an effort on fund
should be mobilized in more productive sector to increase profit, extend more facilities
to customer.

8. Methods

a) Research design
The process used to collect information and data for the purpose of making business decision.
The methodology may include publication research, interviews, surveys and other research
techniques, and could include both present and historical information. Research comprises
”creative work undertaken on a systematic basis in order to increase the stock of knowledge
,including knowledge of human , culture and society, and the use of this stock of knowledge to
devise new application. Research design is plan, structure and strategy of investment
conceived so as to obtain answer to research question. The plan is overall scene or program of
the research. Research design indicates a plan of action to be carried out in connection with
purpose research work.
b) Population and sample
It is the entire group of people, events or things that the researcher wishes to investigate. In
simple meaning, it is people, object or events as defined by the researcher in his/her report.
The finding of the research is generalized in the population. Representation portion of the
population selected for investigation based on nature and necessity of research is sample. In
the final report, all the banks of Nepal are the population and RBB is the sample bank in our
research.

c) Natures and sources of data

Data can be broadly classified into two types:
 Primary data and secondary data
 Qualitative and quantitative data
I will use secondary data and quantitative data. I have collected this data from organizational
reports of Rastriya Banijya Bank.
d) Data collection procedure
The sources of data will be collected from reports of banks published in their respective annual
general meeting and website of relevant bank. Financial statistics published by Nepal Rastriya
Bank and non-bank regulation department.

e) Methods of data analysis

The data analysis will be mainly based on Ratio analysis, Current ratio, Quick ratio, Total
deposit, Debt Assets ratio, Earning per share, Net Profit, Interest coverage.
f) Technique of analysis
The research will be conducted based on content analysis like different charts, tables, bar
diagram, presentation, etc.

9. Limitation of the study

A like other research, this study also has some limitation which are as follows:
 The study is mainly depending on secondary and quantitative data.
 Only few methods are used to analyze they are: Ratio analysis, current ratio, Quick ratio,
Total debt ratio, Debt Assets ratio, Earning per share, Net profit, Interest coverage.
 The study is based on the period of 5 years’ trend of concerned bank.
 Time and resources lack are the main limitation of the study.
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